MAN2105 Practice Exam PDF

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UNIVERSITY OF SURREY © Faculty of Business Economics & Law Surrey Business School Undergraduate Programme in Accounting & Finance

MAN2105; 15 credits

INTRODUCTION TO TAXATION Level FHEQ5 Specimen Examination (Closed Book)

Time allowed: 2 hours

Semester 2;

Instructions to candidates: 

Answer ALL questions



Where appropriate the mark carried by an individual part of a question is indicated in brackets ( ).

©Please note that this exam paper is copyright of the University of Surrey and may not be reproduced, republished or redistributed without written permission

TAX DATA CORPORATION TAX Augmented Profits

Corporation Tax rate Financial Year 2018 (1.4.2018 to 31.3.2019)

Corporation Tax rate Financial Year 2019 (1.4.2019 to 31.3.2020)

All Profits

Main Rate 19%

Main Rate 19%

NATIONAL INSURANCE Tax Year 2019/2020 Self-employed National Insurance Contributions (sole traders and partners) Class 2 contributions are payable at a flat rate of £3.00 per week, and in addition, Class 4 contributions are payable on the profits as follows: 9% of profits for the year between £8,632 and £50,000 plus 2% of profits above £50,000 INCOME TAX Personal Allowance for tax year 2019/20: £12,500 Tax bands 2019/20 Basic rate 20% Higher rate 40% Additional rate 45%

£ 0 - 37,500 37,501 to 150,000 over 150,000

CAPITAL GAINS TAX – FOR INDIVIDUALS 2019/20 Annual Exempt Amount £12,000 Rates Gains on other assets

10% and 20% (for higher rate income tax payers) (10% where entrepreneurs’ relief is claimed)

You must answer ALL questions Question 1 Fluffy Ltd, an unquoted trading company, changed its accounting date from 31 December to 31 March by preparing accounts for the fifteen months to 31 March 2020. Its net profit for those fifteen months was £700,411 after accounting for the following items: Before: 01 Jan – 31 Dec (12m) Now: 01 Jan – 31 March (15m) Note £ Profit on the sale of shares (1) 51,577 Profit on sale of factory (2) 431,500 Bad debt provision (3) 45,000 General expenses (4) 47,000 Depreciation (5) 90,000

Notes: 1. The profit on the sale of shares relates to 20,000 shares in Scarey plc that were sold for £82,000 in February 2020. The shares had been acquired as follows: 10,000 shares bought for £12,000 in May 1991 Scarey plc made a bonus issue of 1 for 10 in June 1998 10,000 shares bought for £22,000 in November 1999 2. Fluffy Ltd sold its factory for £612,900 on 1 March 2020. The factory had cost £225,000 when purchased new in October 2005. It had been used exclusively to manufacture Fluffy Ltd's products since its acquisition. Plant and machinery were sold together with the factory. The purchaser paid a further £86,500 (original cost £172,000) for this plant and machinery. This P&M was included in the WDV b/f in the main pool. Fluffy Ltd leases its other two factories. 3. Bad debts are made up of: Debts written off - trade Increase in general provisions

£15,000 £30,000

4. General expenses include: Gifts to customers (100 food hampers) Entertaining customers Staff Christmas party (50 people) Parking fines paid for employees

£5,000 £2,600 £2,000 £700

5. The plant and machinery capital allowance computation for the CAP y/e 31/12/18 provided the following carried forward values: General/main pool Short-life asset pool

£145,000 £10,000

Analysis of the accounts reveals that the following assets were acquired or disposed of during the 15 month period. May 2019 June 2019 Feb 2020 Mar 2020 rate

Acquisition of a delivery van costing £12,000 AIA Disposal of the short-life asset for £11,000 Acquisition of water-efficient plant costing £15,000 FYA Acquisition of a new Audi for £35,000 (emissions 200 g/km) special

6. The following indexation factors are available: May 1991 – November 1999 0.249 November 1999 – December 2017 0.668 October 2005 – December 2017 0.439

Required: Please note: Marks will be allocated for presentation and layout. Annotate and label all workings a) Calculate the chargeable gains arising from the disposal of shares in Scarey plc and the factory (15 marks) b) Calculate the adjusted trading profit, before capital allowances, for the period ending 31 March 2020. (7 marks) c) Calculate the Plant and Machinery capital allowances

(15 marks)

d) Show the TTP for the period ended 31 December 2019 and the period ended 31 March 2020. (9 marks) e) Calculate the Corporation Tax payable for the total period ended 31 March 2020. (2 marks) f) For both CAPs when is the final payment of tax due and by what date does the CT600 return need to be submitted online? (2 marks)

Question 2 Ben started trading as a mechanic on 1 January 2017. He makes up accounts to 30 September each year. The profits were calculated as: Period to 30 September 2017 Year to 30 September 2018 Year to 30 September 2019

£28,000 £35,000 £38,000

Required: a) Describe three of the ‘badges of trade’ that HMRC might use to assess that Bens income is trading income. (3 marks) b) In which tax year did he start trading?

(1 mark)

c) Calculate his taxable profits in his first tax year of trading and state the basis period. (2 marks) d) Calculate his taxable profits in his second tax year of trading and state the basis period. (2 marks) e) Calculate his taxable profits in his third tax year of trading and state the basis period. (2 marks) f) Calculate his overlap profits and explain what relief, if any, is available for them. (3 Marks)

Question 3 Adam, Ben and Clive have been in partnership for many years, sharing profits in the ratio 5:3:2. They have always made their accounts up to 31 October each year. On 31 March 2019, Clive decided to leave the partnership. The remaining partners then agreed to divide their profits equally. For the year ended 31 October 2018, the partnership trading profit was £84,000. For the year ended 31 October 2019, the partnership trading profit was £108,000. Clive had £2,000 overlap profits brought forward. a) Calculate the division of profits between the partners for the accounting year ended 31 October 2019. (6 marks) b) What is the trading assessment for 2018/19 for Clive?

(4 marks)

Question 4 Nim disposed of the following assets during the year 2019/20: I.

On 20 July 2019 Nim made a gift of 10,000, £1 ordinary share in Kapook plc to his daughter. On that date the shares were quoted on the Stock Exchange at £3.70. Nim has made the following purchases of shares in Kapook plc: 19 February 2003 8000 shares for £16,200 6 June 2008 6000 shares for £14,600 24 July 2019 2000 shares for £5,800

II.

On 13 August 2019 Nim transferred his entire shareholding of 5000 £1 ordinary shares in Jooba Ltd to his wife. On that date the shares were valued at £28,200. Nim’s shareholding had been purchased on 11 January 2009 for £16,000. On 26 November 2019 Nim sold an antique table for £8,700. The antique table had been purchased for £5,200. On 2 April 2019 Nim sold UK Government securities (Gilts) for £12,400. The securities had been purchased for £10,100.

III. IV.

Other information Nim has taxable income of £10,000 in the tax year 2019/20. Nim makes no claim for entrepreneur’s or gift relief. Required Compute Nim’s CGT liability, if any, for the tax year 2019/20.

(16 marks)

Question 5

A sole trader had an income tax liability of £6,000 for 2018/19, and an income tax liability of £8,500 for 2019/20. No tax was deducted at source. He also had a capital gains tax liability of £5,000 for 2019/20. Assuming there has been no request to reduce payments on account, calculate the amounts due and give the dates due for the 2 payments on account and the final payment. Do this for 2019/20 liabilities only. (6 marks)...